In a recent study, Japan Exchange Group (JPX) has found that application of distributed ledger technologies (DLTs) has a great potential to transform capital market infrastructure.
The JPX has released a working paper on the “Applicability of Distributed Ledger Technology to Capital Market Infrastructure” which has been prepared with inputs from its PoC test partners, IBM Japan, Ltd., Nomura Research Institute, Ltd., and CurrencyPort Limited; test participants from the Japanese financial industry – Japan Securities Depository Center, Inc., Mizuho Securities Co., Ltd., Monex, Inc., Nomura Securities Co., Ltd., SBI Securities Co., Ltd., The Bank of Tokyo-Mitsubishi UFJ, Ltd; as well as other external experts.
In late 2015, the JPX established an internal research group and has studied the applicability of DLT to capital market infrastructure. During April to June 2016, through two PoCs with six other domestic financial institutions, it tested whether a streamlined process on securities market, security issuance, trading, settlement, clearing, and ownership registry, could be realized in a DLT environment.
“Through our research and PoCs, we have concluded that DLT has the potential to transform capital market structure by encouraging new business development, improving operation efficiency, and contributing to cost reduction”, it said.
The paper has also outlined several concerns that might prevent DLT deployment. This includes the business requirement of time-trigger events such as a periodic interest rate payment or maturity of a derivatives contract, transaction throughput, data privacy and other such issues.
The paper concludes saying: “Although we have found some issues that need to be resolved, applying DLT in capital market infrastructure has great potential to contribute to generating new business, enhancing business operations, and reducing cost and even rebuild the financial business models that exist today.”
